The BRICS group, which comprises Brazil, Russia, India, China and South Africa, is focused on increasing the use of national currencies of its members before considering the launch of a common currency, according to a statement from South Africa’s ambassador to the group, Anil Sooklal. While the introduction of a common currency is one of the ambitions of the group, supporting its medium and long-term plans is the need to deepen ties between the economies and financial markets of its members. “Right now we are working on expanding the use of BRICS national currencies in mutual trade,” said Sooklal. He added that increased use of national currencies in trade and investment should come before the creation of a single currency. There are currently different scenarios being considered, but the foundation for a single BRICS currency is entirely dependent upon the increased usage of national currencies.
The BRICS group is expected to discuss expansion when senior officials gather in Cape Town in June. The idea of introducing a BRICS currency is supported by member states. The possible introduction of a currency that could increase the influence of its members and sidestep Western sanctions has raised concerns in the US that the positions of the dollar could be threatened. These concerns are expected to be discussed at the upcoming BRICS leaders’ summit in August.
Increasing the use of national currencies and increasing their role in global trade and investment can strengthen a country’s cash reserves and give it greater fiscal control. It can also ease the effects of external currency fluctuations on domestic markets. The use of the US dollar for international trade, starting in the aftermath of World War Two and becoming widespread in the 1970s, led to its positioning as the world’s dominant reserve currency. However, a diminishing of the dollar’s status could lead to the removal of this control, which is also what cryptocurrency proponents are advocating. An increasing number of countries are currently considering replacing the dollar with an alternate currency to use as a benchmark in energy contracts.
Observers believe that any potential common currency for the BRICS group would be some way off. So while the slow realisation of a common currency may undermine the long-term prospects of the group, the continued use of national currencies in trade and other transactions is a significant development.